Why New Bankruptcy Laws Are Creating More Foreclosures
Back in 2005 when the new bankruptcy laws were passed by Congress many worried that the laws would have consequences no one imagined. And surprise to surprise, the new bankruptcy law is contributing to the rise in foreclosures across the country.
Everyone thinks of bankruptcy as a tool to get out of debt, but the real reason for bankruptcy is to allow entreprenuers to take on more risk. One of the great things about the American economy is that innovation is very highly valued. And that failure is not punished like in the rest of the world. This has given the United States a competitive advantage that is disappearing when we fail to reward risk taking.
But today’s growing problem in the housing market is different—foreclosures are soaring, while bankruptcies, though clearly on the upswing, are running roughly at half the 2001-2003 pace. The reason: A new bankruptcy law, approved by Congress in 2005 after years of debate, makes it much harder for households to get out from under their consumer debt. The result: More people being forced to walk away from their homes, leaving lenders holding the bag. Perversely, a law intended to help the financial industry may be damaging the housing sector, creditors and borrowers alike. “It doesn’t matter what you think of the purpose of the new bankruptcy law. The timing is bad,” says Susan M. Wachter, professor of real estate at the Wharton School of Business. via BusinessWeek
Great points Tom - the flavor of the day solution is only adding to the instability and volatility.
When Washington ...
I see it all too often where owners decide to be investors without understanding that tenants have rights. Its ...
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please contact me via e-mail if interested in the home listed
above.
jonieckstrom@yahoo.com 
This is a topic currently being debated in our local Real Estate Board here in Toronto Canada. Online, we ...
A property management company should realize that most potential tenants now will have a foreclosure or bankruptcy on their credit....as ...
my boyfriend and i just fell for the scam ourselves, it's sad what they are able to do. I am ...
Now is an excellent time for business people to buy if they have decent credit (I did not say excellent ...
I just finished emailing some guy from "West Africa" who gave me the same exact bs. He even went so ...
Comment by Christina Ethridge on 10 November 2007:
Ok . . . I’m missing something. Whether someone files BK or forecloses, the bank still is left holding the bag. Now, instead of foreclosures being ‘hidden’ behind the mask of a BK and that same person being able to take on a loan again within 2 years, the person with the foreclosure will have to wait 4-7 years (current underwriting standards). People can still take risk, just not walk away as easily.
There has to be a balance – prior to the laws it was ridiculously easy to simply toss aside frivolous mistakes. Now, it may be ridiculously harder, I don’t know – but there must be consequences.
What do you suggest?